Improving MFI Performance in Competitive and Saturated Environment

This paper argues that MFIs can create value for their clients in a structured, controlled and sustainable manner even in very saturated sectors. The paper states that:

• The establishment of commercial, profit-making microfinance models has led to competition and diversified services;
• Nevertheless, this profitability rationale has often driven the MFIs towards more easily-accessible economic activities and zones in order to limit operational expenses;
• Rural zones have been neglected for urban areas;
• This has led to an observation that the diversity of MFI programs in very competitive markets yields positive and negative effects.

The paper suggests that:

• In their search for market share and profitability, MFIs should not lose sight of their clients, the microfinance sector and their country's economic policies;
• The development of microcredit should not be accompanied by an increase in default cases and over indebtedness.

The paper concludes that:

• A legal framework that encourages and enforces the setting up of credit and information bureaus would enable the smooth running of microfinance operations;
• Policies that encourage competition between credit providers and the application of well-designed measures to protect consumers, and that encourage transparency, would enhance the viability of microfinance operations.